Public Management and Administration - Owen E.hughes

9
Financial Management
Introduction
Financial management is, arguably, the most important part of the internal
management of government. Any activity of government needs money in order
to operate; indeed the ability to raise taxation and to spend it is what sets the
institution of government apart from other parts of society. Raising and spending
money are not narrow, technical operations for any government. The use of
money determines the very nature and extent of government activity, as well as
the winners and losers in the political competition for financial favours. A party
or group in government has access to the government’s taxation revenues to
spend; a loser has nothing. With the increasing pressures on government both
to provide services and to contain or reduce its costs, the budgetary process has
become a crucial battleground, one which exists within the bureaucracy no less
than in the community at large. A reality of government is the internal political
game played by agencies as advocates and moderators of political demands.
Financial management in the traditional model of administration was rather
primitive. Due to poor information a form of incremental management was all
that could be followed. This was related to inputs into the administrative
process as governments had only inferior ways of determining what the public
sector actually produced. The information available from input or line-item
budgeting was so poor that many of the other features of the traditional model
of administration followed. It was thought too difficult to measure performance,
if indeed this had been considered. The purpose of an agency in many
instances was to spend the budget with little thought as to why or for whom.
Reforms to financial management have been one of the keys to overall public
management reform. After more than fifteen years of these, it is possible to
assess those aspects of the public management reforms that have worked and
others that have not. In the countries that implemented them well, the financial
reforms probably worked best. Financial management is now closely related to
personnel or performance management, under an umbrella of financial management
or a broader strategy like the Financial Management Initiative (FMI)
in the United Kingdom in 1982, or the Financial Management Improvement
Programme (FMIP) in Australia (see Zifcak, 1994). In turn, the most important
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